'Toyo Fan' contributed this article to NextInsight
THE AUSTRALIAN GOVERNMENT has just decided to build Sydney's second airport at Badgerys Creek with construction expected to start in 2016.
Badgerys Creek, sparsely populated with fewer than a thousand residents, is 51 km west of the Sydney CBD.
A population centre nearby is Smithfield (population 11,000 and 30km west of Sydney CBD).
Smithfield is 24.7 km from Badgerys Creek by road. The travelling distance may be shortened when new roads are built for better access to Badgerys Creeks.
THE AUSTRALIAN GOVERNMENT has just decided to build Sydney's second airport at Badgerys Creek with construction expected to start in 2016.
Badgerys Creek, sparsely populated with fewer than a thousand residents, is 51 km west of the Sydney CBD.
A population centre nearby is Smithfield (population 11,000 and 30km west of Sydney CBD).
Smithfield is 24.7 km from Badgerys Creek by road. The travelling distance may be shortened when new roads are built for better access to Badgerys Creeks.
Smithfield is where Singapore-listed New Toyo owns a printing factory, which it bought in Dec 2008 from British American Tobacco (BAT).
New Toyo is a leading regional provider of specialty packaging materials to the tobacco, food & beverage, wine, liquor and cosmetics industries in Asia Pacific.
32, Britton Street, Smithfield: New Toyo bought over this printing factory from British American Tobacco in 2008. Photo: Google
In taking over the factory, New Toyo also won the exclusive rights to supply cigarette cartons to BAT cigarette factories in Australia, Singapore, Malaysia and Vietnam for 7 plus 3 years.
Before the purchase, New Toyo had printing factories in Malaysia and Vietnam.
The factory at Smithfield sits on 3.3 hectare freehold land. Although this factory used to have the same output as the printing factory in Malaysia, its site area is much larger. That of the Malaysia factory is 1.2 hectares and is capable of higher output.
Last year, the Smithfield factory shifted one of its two gravure printing presses to New Toyo's factory in Vietnam, and trimmed its Aussie workforce.
This followed an earlier decision by BAT to scale down its cigarette production in Australia.
New Toyo is a leading regional provider of specialty packaging materials to the tobacco, food & beverage, wine, liquor and cosmetics industries in Asia Pacific.
32, Britton Street, Smithfield: New Toyo bought over this printing factory from British American Tobacco in 2008. Photo: GoogleIn taking over the factory, New Toyo also won the exclusive rights to supply cigarette cartons to BAT cigarette factories in Australia, Singapore, Malaysia and Vietnam for 7 plus 3 years.
Before the purchase, New Toyo had printing factories in Malaysia and Vietnam.
The factory at Smithfield sits on 3.3 hectare freehold land. Although this factory used to have the same output as the printing factory in Malaysia, its site area is much larger. That of the Malaysia factory is 1.2 hectares and is capable of higher output.
Last year, the Smithfield factory shifted one of its two gravure printing presses to New Toyo's factory in Vietnam, and trimmed its Aussie workforce.
This followed an earlier decision by BAT to scale down its cigarette production in Australia.
BAT now is producing in Australia only two popular brands, Winfield and Benson & Hedges, and importing the other brands for the domestic market.
In line with that, recently, Phillip Morris, the second largest player in Australia after BAT, announced it would close down its cigarette manufacturing factory in Australia and import from South Korea.
New Toyo (32 cents) trades at a trailing PE of 8.9X, dividend yield of 5.3% and a market cap of S$141 million. Chart: FT.comThe Smithfield factory, which was already oversized before last year's scaling down of operations, has even more surplus space now.
The question that arises is whether New Toyo will find a more cost-efficient arrangement to serve the reduced operations of BAT in Australia.
Will it sell the Smithfield factory and carry out printing at another, smaller factory? Or will it sell the bulk of the land at Smithfield and carry out printing on the residual plot?
Will news of the new Sydney airport hasten a review of the land use of the factory?
The Smithfield factory is carried on New Toyo's book at $ 15.4m ($10m land and $5.4m buildings). If the land value appreciates, the case for selling off the Smithfield factory becomes more compelling.
Recent story: NEW TOYO: New exec chairman is company veteran but...
Will it sell the Smithfield factory and carry out printing at another, smaller factory? Or will it sell the bulk of the land at Smithfield and carry out printing on the residual plot?
Will news of the new Sydney airport hasten a review of the land use of the factory?
The Smithfield factory is carried on New Toyo's book at $ 15.4m ($10m land and $5.4m buildings). If the land value appreciates, the case for selling off the Smithfield factory becomes more compelling.
Recent story: NEW TOYO: New exec chairman is company veteran but...
Comments
it is not unreasonable for Amcor to offer at least 6 ~7 times EBITDA if it were to acquire New Toyo (and by extension Tien Wah). This would value New Toyo between 50 to 60 cents.
Just need to be patient :)
Between 1999 to 2002, at 23.35 cent of EPS value in LOSS were incurred from the tissue paper business.
based on the current EPS of 3.5 cents, it will take 6 to 7 years to make up for the loss in valuation back then.
Will New Toyo's new Chairman stand up to the test? It remains to be seen. The expiry of the supply contract with BAT is in Dec 2015, which is less than 2 years away.
http://www.valuergeneral.nsw.gov.au/your_land_value/historical_land_values
See Table 7.
Nothing to rejoice about!
Rather, one should look at the core business of New Toyo. Is there a possibility that New Toyo/Tien Wah can capture new printing volumes in Asia Pacific?
Will BAT renew the exclusive supply contract?
What are the downside risks?